Reimagining Financial Systems to Create Thriving Economies
Lessons from the 2022 National Interagency Community Reinvestment Conference
In March 2022, we brought together over 2,400 community development professionals from across the country for the National Interagency Community Reinvestment Conference. Co-hosted with the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, the Federal Deposit Institution Corporation, and the Board of Governors of the Federal Reserve System, this biennial event offers Community Reinvestment Act examination training alongside best practices in community development shared by experts from around the country. With its theme, Reimagine, Reinvest, Rebuild, the conference sought to spark ideas, conversations, and actions to reimagine the systems that shape community development.
In her opening remarks, San Francisco Fed Vice President of Community Development Bina Shrimali noted the unique landscape faced by the community development field as communities grapple with numerous challenges, from the pandemic and its toll on our health and economy to the impact of inflation on families, businesses, and our financial systems.
“Moments of great disruption and challenge are often important inflection points, where we see acceleration and flourishing of ideas,” she said as she invited participants to capture the possibilities and momentum of this time to push the community development field forward.
Creating more inclusive financial systems
Throughout the conference, speakers shared ideas, lessons learned, and actions to support reinvestment and rebuilding in communities across the country. One of the major themes expressed across sessions is the need for more inclusive financial systems, particularly increasing access to credit for individuals and small businesses not well-served by the traditional financial system.
Data from the Fed Small Business Credit Survey consistently show that businesses owned by people of color are more likely to report financial challenges than White-owned businesses. The most recent report found that Black- and Hispanic-owned firms that applied for non-emergency financing were less than half as likely as White-owned firms to be fully approved, despite having low credit risk ratings. A 2021 report spotlighted the gaps in access to credit for African American individuals and businesses: the unbanked and underbanked rates were highest for Black adults in 2019, and communities that are predominantly Black or Hispanic have fewer banks and financial services options than majority White communities.
As speakers highlighted the challenges faced by individuals and entrepreneurs from diverse backgrounds and potential solutions to move towards a more equitable system, two themes for action emerged: strengthening relationships and rethinking data.
Build stronger relationships between banks and the communities served, including mission-driven financial services providers like Community Development Financial Institutions (CDFIs).
One barrier to closing the access to credit gap is a lack of trust, said Titi Ikhile of Working Solutions CDFI at the “Reimagining Access to Credit for Entrepreneurs of Color” session. “Individuals and entrepreneurs of color have experienced systemic injustice and rejection over time,” she said.
At the “Fintech’s Promise to Financial Inclusion” session, speakers said a way to establish this trust is to ensure that banks have decisionmakers and leaders who look like your consumers and to create partnerships with the communities you’re looking to serve to help design products and services that meet consumer needs.
“Having people at the table that represent the communities that these industries are serving is important because they can talk about how people access banking or financial services. They can talk about the things they’re looking for, how they spend money, how they save money,” said Federal Reserve Bank of Chicago’s Kristen Broady.
In addition to strengthening relationships with individuals, banks have an opportunity to build important connections with community-serving institutions like CDFIs to help entrepreneurs access the credit they seek when banks themselves are unable to provide credit. Panelists at the Access to Credit session spoke about the need for banks, CDFIs, and other credit providers to collaborate more closely to create an ecosystem of credit access for small businesses owned by people of color, women, veterans, and other groups who have historically been underrepresented.
“One of the most important things you can do for your company is to have a really good sense of who your customer is,” said Arlan Hamilton of Backstage Capital in a plenary conversation with Stephen Green of Pitch Black and A Kids Company About. Building community is important for understanding and keeping a pulse on the needs of underserved customers, and it’s increasingly happening online, said Green: “Social media seems to be that new place where you can go and talk to folks…and just get a feel for what’s going on with them.”
Think differently about data.
Another key theme heard across sessions was the importance of data to document the gap in access to credit, and to make the case for banks to change their approach in this work. As Chad Gourley of Zions Bank shared at the Access to Credit session, Zions used data from the Small Business Credit Survey and other sources to support the development of a special purpose credit program, which is an underutilized but viable means for enabling increased access to credit for under-represented businesses.
Equally important is the need to think differently about data when making decisions about credit and financial services.
Maria Palacio, co-founder of Progeny Coffee, shared how difficult it was to procure financing to grow her company, demonstrating how limiting access to credit based on traditional measures ignores the potential of small businesses.
“We went to all the banks out in my area… and everybody said no. Just because I didn’t have the credit, I didn’t have the history,” said Palacio at the Access to Credit session. She secured her first loan through a CDFI.
“If we look at traditional credit reporting and traditional credit scoring, there are glaring gaps that contribute to inequality,” said Jason Gross of Petal & Prism Data in the Fintech session. He argued that there is enough information to serve consumers rendered invisible by the traditional credit system, “but it requires us to meet them where they are…We have to look beyond that to the financial data that exists.”
Some examples include expanding the definition of credit data to include information on cash flow and banking history—people’s incomes, bills, and their expenses—rather than just looking at credit history, or accepting any kind of federal identification to open a banking account instead of limiting it to identification issued by the U.S.
“[You] have to be open to thinking outside the box, and you can’t keep doing things the way that you were doing them historically,” said Christina Keitt-Chaney of MoCaFi.
A New Framing
In her plenary, Arlan Hamilton discussed the need for a new framing when thinking about who typically is shut out of our financial systems—from “underrepresented” to “underestimated.”
“Underestimated means that you haven’t taken enough time to think about what my potential is. And that makes people think a little bit harder,” she said.
Reframing our thinking about full inclusion in our financial systems and reimagining how these systems work to shape community investments will support more individuals and businesses to thrive, strengthening our communities and contributing to a healthy and sustainable economy for all.
The National Interagency Community Reinvestment Conference is sponsored by the Federal Reserve Banks of San Francisco and Chicago, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
Interested in more from the conference? Stay tuned for more insights from the conference on the blog, or watch the replay by registering to access the 2022 NICRC recordings.
Rocio Sanchez-Moyano, PhD is a senior researcher in Community Development at the Federal Reserve Bank of San Francisco. Her areas of expertise include housing and asset building, with a special interest in racial and ethnic equity and the experiences of Hispanic and immigrant households. At the SF Fed, Rocio also works on inclusive financial systems.
Sarah Simms is a community development finance manager for the Federal Reserve Bank of San Francisco’s Community Development team. In this role, she seeks to further the conversation around emerging issues and best practices in the community development finance sector.
You may also be interested in:
- Advancing Equitable Access to Small Business Credit
- Financial Inclusion & Beyond podcast series
- Fintech, Racial Equity, and an Inclusive Financial System
- Four Lessons for the Future of Central Banking
The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.